Apr 8, 2009

Law and Economics: The Bimodal Distribution of Lawyers' Salaries

A New York Times op-ed recently reminded me of the graph below, showing the bimodal distribution of lawyers' salaries: public service on the left, private law firms on the right. Time for more two year law schools? Lower biglaw salaries? People don't think of law firms as highly leveraged institutions but while they don't usually have much debt, they do have operational leverage from the partner-associate structure. Each associate is a fixed cost that has to be paid (debt) before the partner gets his earnings (equity). So a firm with 1:1 partner:associate ratio is about 50% leveraged. Of course, associates can be laid off during bad times, while debt is defaulted on.

1 comment:

allan Gering said...

This is unlike any normal labor market salary distribution I've ever seen.The last great associate salary spike, from $125Kto $160K, took place roughly 18 months ago when times were flush.